Contract Worker vs. Full Time Employee: Things To Keep In Mind
In just a few years, it’s expected that four out of every ten workers in America will be freelance. What advantages does that status give to employers? The primary ones have to do with cost and flexibility.
While full time employees almost always make less per hour than contractors, there is one significant difference. Full time employees almost always get benefits. Having to pay for things like a 401K, health care, Social Security, tax withholdings, and unemployment can mean that, even with the lower wage, full time employees can cost between 20 and 30 percent more overall than contractors.
When looking at hiring a contract worker vs. full time employee, something else to take into account is the kind of work you need done. If not much supervision is needed, and you don’t much care how a project is finished, then a contractor is a good choice. However, close supervision and examination of a work process, as opposed to just the result, is something that is limited to employees. Too many restrictions of that nature on a contractor could land you in legal trouble, as it will seem to the tax man like you’re misclassifying an employee solely to avoid paying benefits.
One big advantage of contractor workers is that you have flexibility over their employment period. You can bring them in to do specific tasks, and let them go when the work is done. The flip side of that is that you lose the sense of loyalty that often comes from full time employees. Contractors are not likely to put in extra effort (at least not without extra money), and will not go outside of their job description. Full time employees have a built-in reason to want the company to succeed, and will often go above and beyond to help out.
Another thing to think about when debating whether to go with a contract worker vs. full time employee is corporate culture. More contractors equals a greater amount of turnover, and it can be hard in all that chaos to establish a consistent way of doing things. You may also have to constantly be training people for similar jobs over and over again, which can be a drain on both time and money.
Whatever you decide, make sure that you are being honest with how you classify employees. Businesses that treat contractors as full time employees minus benefits – a practice that is becoming more common with each passing day – can face severe penalties. You can check the Small Business Administration’s website here for guidelines on how to classify your workers. The Department of Labor has an entire division, the Wages and Hour Division, devoted to finding offenders, and they handed down $74 million in fines in 2015. So whatever decision you make, be honest!